Niko to relinquish stake in D4 block in India

Reliance Industries and partners BP and Canada's Niko Resources have abandoned the D4 oil and gas block off India's east coast, Niko said, underlining the production problems in the region.

The D4 block, situated in the Mahanadi basin, lies north of Reliance's main D6 block in the neighbouring Krishna-Godavari basin, where gas output has declined sharply over the last year, marring growth outlook for the Indian energy major and forcing the government to hold back approvals.

Niko Resources. Image courtesy Niko Resources

Niko said in a statement its decision and that of its partners stemmed from the current geological assessment related to the size of the trapping mechanism and the commercial environment currently prevailing in India.

Niko was required to conduct seismic work and drill three exploration wells until June 2013 on the block, which is spread over 17,000 square kilometers, according to information on its website.

Calgary, Alberta-based Niko has a 15 percent interest in the D4 block, while BP holds 30 percent. Reliance owns the rest and is also the operator of the block.

According to reports, in 2010, Niko initially estimated the D4 block could potentially be twice as large as the flagship D6 block in the Krishna-Godavari basin and may hold as much as 100 trillion cubic feet (tcf) of gas.

However, analysts currently estimate the D4 block's reserves at a small fraction of that number.

"It is not that significant a block. But it just reiterates that the exploration and production block that Reliance holds is not that promising. The entire block is being relinquished," Ambit Cap analyst Dayanand Mittal said.

A Reliance spokesman did not immediately comment. Officials at BP declined to comment on the matter.

Earlier this month, Reliance cut estimates for proven gas reserves in its Indian blocks by 7 percent to 3.67 trillion cubic feet (tcf), blaming low pressure and uneconomic volumes for the lower-than-expected volumes.

Niko holds a 10 percent stake in the D6 block, which is estimated to hold probable reseves of more than 9 tcf of gas. Last year, Reliance sold a 30 percent stake in 21 oil and gas blocks - including in KGD6 and D4, to BP, in a $7.2 billion deal.

Reliance shares closed 0.6 percent lower at Rs 691.10, in a Mumbai market down 1 percent. Niko shares were down more than 16 percent to C$27.81 on the Toronto Stock Exchange.